Debentures Redemption Reserve

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This discussion clarifies the requirement for a Debenture Redemption Reserve (DRR) for companies. Generally, all domestic limited companies must maintain a DRR, even if their Non-Convertible Debentures (NCDs) proceeds are invested in mortgaged Security Receipts. However, certain entities are exempt, including all India financial institutions, housing finance companies, registered NBFCs, scheduled banks, and companies listed on the NSE or BSE. These exemptions aim to reduce borrowing costs.

ABDUL SALAM

ABDUL SALAM (Querist)
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04 June 2022 Dear Sir/Madam,

Subject: Requirement of Debenture Redemption Reserve

Facts:
1. Ours is a domestic limited company
2. We have issued secured NCDs
3. The proceeds recd. by issuing NCDs have been invested in Security Receipt
4. The Security Receipts have been mortgaged to the debenture holders

Question:
Considering the above facts, please suggest us whether there is any requirement of creating DRR in the books of accounts.

Thanks & Regards

RANGA SRINIVAS

RANGA SRINIVAS (Expert)
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06 June 2022 Applicability of Debenture Redemption Reserve (DRR)
All companies need to maintain a DRR except for the following: –

All India financial institutions: – The companies which are doing business under the supervision of the RBI like Export, Import Bank of India, Small Industries Development Bank of India, and National Housing Bank etc.
Housing finance companies: – No need to maintain the DRR for the company registered with the Housing Finance Companies.
Non-banking financial companies: – No need to maintain the DRR for the registered under Section 45-IA of the RBI Act, 1934.
All scheduled banks: – The scheduled bank mentioned in the second schedule of the Reserve Bank of India Act, 1934 shall waive to maintain the DRR.
Listed companies: – A company listed on one of the two stock exchanges, either the NSE or the BSE.
The main purpose of these relaxations was introduced by the MCA for the reduction of the cost of borrowings incurred by companies.

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ABDUL SALAM

ABDUL SALAM (Querist)
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08 June 2022 Thanks a lot for the information and time Sir...

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